When More Tax Transparency May Make Things Worse
Across the world, policymakers are pushing for more corporate tax transparency. Firms are increasingly required to publicly disclose where they sell, have employees, earn profits, and how much tax they pay. The EU forces large companies to disclose this publicly, and Australia hosts a website with such information. The logic is simple and appealing: more transparency should make it easier for the public—e.g., investors and consumers—to identify aggressive tax avoiders and hold them accountable.
But good intentions are not the same as good policy.
The case for public tax disclosures rests on a strong assumption—that ordinary users of information can meaningfully interpret what is disclosed. Once sunlight shines on companies’ tax affairs, the argument goes, aggressive behavior will be exposed, reputational pressure will rise, and firms will adjust accordingly.
There is, however, remarkably little empirical evidence that this mechanism actually works.
Recent research casts serious doubt on the idea that public tax disclosures help the public distinguish between aggressive and benign corporate tax behavior. In controlled experiments with financially literate retail investors, researchers examined how people assess firms that pay the same overall amount of tax but achieve that outcome in different ways—such as the benign use of investment tax credits versus aggressive profit shifting to low-tax jurisdictions.
The results are uncomfortable for transparency enthusiasts. When simplified public tax disclosures are introduced—modeled on real-world disclosures by the Australian tax authority—people become worse, not better, at identifying aggressive tax strategies. Faced with easily accessible headline numbers like “taxes paid,” people simply rely heavily on those figures and pay less attention to more informative context, such as why taxes are low.
In other words, simplified transparency encourages shortcuts.
Rather than asking the complex question policymakers want them to ask—“Is this firm using aggressive tax strategies?”—people subconsciously answer a simpler one: “How much tax did this firm pay?” If the number looks reasonable, the firm appears acceptable, regardless of the underlying behavior.
This effect also spills over into investment decisions. Investors are generally less willing to invest in firms they perceive as aggressive tax avoiders. But once simplified public tax disclosures are added, this sensitivity largely disappears. Investors’ willingness to invest becomes less responsive to differences in tax behavior, even when those differences matter economically and ethically.
Crucially, the problem does not disappear with better formatting. The researchers tested several improvements: adding disclaimers that tax figures are incomplete, making detailed tax reconciliations more visible, and presenting information in a country-by-country format. These changes reduced some of the confusion—but none led to better judgments than a world without additional public tax disclosure at all.
The broader implication is sobering. Public tax disclosures do not reliably help retail investors identify aggressive tax planning. At best, they do nothing. At worst, they mislead.
And if retail investors struggle, it is hard to believe that consumers will fare any better. For public tax disclosure to meaningfully affect consumer behavior, a long chain of conditions must be met. Consumers must first notice the information—often buried in technical reports or news articles. They must then understand it, form a judgment, and—if they care about corporate tax avoidance—recall that judgment at the point of purchase, perhaps while choosing between brands in a supermarket aisle. This stretches plausibility.
Meanwhile, the costs of public tax disclosure are very real. Firms are required to reveal sensitive information about where they operate, how profits are distributed across countries, and how their tax positions are structured. For European companies, mandatory public country-by-country reporting is imminent. These disclosures are costly to prepare and potentially valuable to competitors—especially global rivals not subject to the same rules.
The cost-benefit balance is therefore troubling. Policymakers are imposing disclosure regimes that are expensive for firms (e.g., because they are strategically informative for competitors) and that are of limited value to the very audiences they are meant to empower.
None of this is an argument against tax enforcement or against transparency per se. But it is a warning against the belief that “more disclosure” is automatically better disclosure. Information does not speak for itself. How it is framed, simplified, and consumed matters just as much as what is disclosed.
At the moment, public tax transparency appears stuck in an unhealthy equilibrium: high costs and vague benefits. Before expanding these regimes further, policymakers should ask a harder question—not whether transparency sounds good, but whether it actually works.
